Profoto Holding AB (publ)

Good morning, and welcome to Profotos Q4 in year-end telco. My name is Amanda Åström, and I'm head of investor relations. Today I have with me our CEO, Anders Hedebark, and our acting CFO, Linus Malmstedt. I will start off by handing over to Anders, who will start off by giving some highlights for the quarter.

Good morning, everyone. Thank you for listening in. The fourth quarter last year, sales dropped by 2% and organically 3%. Our EBIT was 52 million with an EBIT margin of 26%. However, the EBIT non-adjusted was 57 million, and Linus, you will develop on that further down in the presentation. We launched fantastic products, actually, during the quarter, the D30 and the Probe B3. And now, just after our report, we are launching L1600D next week, and we're showing it on on a trade show in London from Friday and onwards. So we see great opportunities in the market. As you all know, Profoto is the premium product in lighting for still photography. And we now are trying to enter the market of cinema lighting And our first product is the L1600D that we have worked on for a couple of years. And we have more to come towards the end of the year to actually be able to offer a full product line for the cinema lighting market. We also see actually the same product great potential in selling it to existing large still photography studios, so to existing customers. But we have also updated our product lines for still photography and those products are also well received in the market. The other thing is that we get a lot of questions about artificial intelligence. I also got that question on the Dagens Industri TV call earlier on today. Light shaping has never been more relevant now than ever before. And Profoto has been forced to adapt to technology shifts a couple of times during history. And at all times, we have thrived after those changes. And we see the same thing with the artificial intelligence. If we do the right things, we see a lot of possibilities in this area. However, we also have the general macro uncertainties that is higher interest rates and based on most probably tariffs and also consumer confidence in Asia that is affecting us and the future sale. So there is not only positive things in the market, there are also some things that needs to be handled and we need simply to work harder in order to promote our products. Coming back to product launches, this is what drives us. We are investing heavily in new products and we can see during history that launching new products is driving future sales. And as you can see in this graph, the last the period of last two years, we have launched a limited number of products and that has also affected our sales. And that is one of the things that has resulted in the decline of sales. And this year so far, we have three launches and we are now launching next week the L&D and starting to invoice and ship, which we already have started in January and in February this year. So we hope a lot for the future. So what kind of products have we launched? In this slide, I try to show that the left side of the slide are flash products, Zenon products. And we have started to update our full product portfolio. So we have launched the Pro B3, the Pro D3 and the D30 into the market. And this has offset the negative trend in the market and have balanced our sales the last quarter. And in addition to this, we are entering the LED market. The LED market is the product LED, but that kind of product is selling both to the cinema, lighting market, the film production market, as well as existing products, large studios that are doing content production in mainly steel, but also simpler or more smaller shorter videos for promotion of of products of different sorts so uh so led will will sell to a lot of different the full range of our existing and and and um and new types of products in with the enter of the the customer group of cinema lighting we expect our total addressable Market to at least double so that is a substantial and already a large Market and so we have a big hope for that And we are continuing our high investments. So last year we invested 121 million Swedish crowns in new products, which was 16% of sales. And we expect the 16 to actually go down in coming years, whereas the 121 might be on a stable level so that we will continue the high operation, be more efficient in our product development process. But we also expect that to pay off in more customer orders and higher sales. So in entering the cinema lighting market, our first product is the L1600D. And we're doing this this quarter, actually next week. And we were focusing on getting new customers that we do not have as customers today, as I earlier said. And we have... During the year, we have employed key staff in London and in Los Angeles, which is the two main markets for film production, cinema production in the world, and especially for Profoto products. And London is actually as big as California in this respect. I did myself a tour, for instance, visiting Pinewood Studios in London, and we see a great of opportunities. And gaffers that are already, gaffers are the electricians that are doing the light setting on set for film production. And the people that has tried it, we get a lot of positive feedback already. And you could follow this on Instagram, for instance, a person called Julian White. however we will not stop with the l1600d it's important for us to continue to invest to offer a full line of products into this market and during towards the end of the year we will have something that looks like a full full line of premium products for um for film production we will continue to invest in or start actually invest heavier in marketing mainly It is exhibiting on trade shows and also on the staff that I just mentioned. We will also, and we have already started this, to grow our dealer network with the dealers that are specifically targeting the film market. This is not a total revamping or a renewal of our dealer network. I would say that we will approximately increase our dealer network with around 10%. And we will do that with our existing key account manager that are already handling the dealer network around the world. But as I said, LED products will also be sold to existing appropriate customers. And we hope to see a good effect on sales towards the end of this year. So, please continue, Linus, and develop on the figures. Okay.

Thank you, Eric. Despite a fairly cautious and a continuous challenge in the market, we actually delivered a solid end of the year with both sales and EBIT on the same level as previous year. And we reported a healthy margin of around 26%. During the quarter, we also released the final payment or the liability of the earn-out related to smaller software acquisition that we did in 2023. If we look at the different geographies, we saw that we had a fairly good, solid development in the US and in Europe. But also we saw a sharp decline in Asia and especially there in China and Japan. For the full year, we had a drop of 7% on the sales. And we reported an EBIT margin decline of five percentage points. So it was a fairly challenging year, but also that we invested in product launches, as we know. Okay, and for the full year, we did not receive the financial target. However, based on what we're doing internally, and also what we investing in for the future we are very confident and committed to actually reach our financial target for the for the longer term and as you saw the board also decided to expand the dividend policy to now include the possibility to do share buybacks And for the full year 2024, we have, or the board, have proposed to deliver a dividend of two Swedish kronor per share. Okay, that's all for me.

Great. We will now open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Marcella Klang from Handelsbanken. Please go ahead.

Good morning. A couple of questions from me. You mentioned increased competition in the report. Can you talk more about it? And I wonder Is that especially in Asia and the sharp decline in your sales in Asia? Does that mean that you're losing market share or is it weakening in Asia?

Hi, Marcela. Thank you for your question. Concerning higher competition, this is all over the world, but they are Asian competitors, specifically Chinese competitors that are doing better and better. But the decline sales in Asia is dependent on the lower consumer confidence. And we mainly also see the concerning, as I say in my report or in my letter, it is mainly due to LED products that are also competing with flash products. But we do not see any specific in different markets.

So not really losing market share to competitors rather than weak market in Asia.

Yes. There are two trends at the same time. All over the world, we see an increasing competitive environment, especially from competitors from China. That is slightly now offset by higher custom fees, of course, from China. to the US with 10% higher tariffs. But mainly in both Japan and in China, we see that consumers are not as confident as before, and that has a result in the investments of content production for market building. and users like brands so they invest not as much as before and or they are waiting with their investments in in lighting for that kind of of productions thank you and then a question regarding your lead launch and your expected effect towards year end

Why so late? Is there any movie season to take into account? Because you mentioned you already started shipping and invoicing in January.

I just want you to be careful in every expectation of how fast we will enter this market. Things take time, especially market entry. We need to work hard, visit customers. We need to showcase that our products are much better and easier to work with. than competitive products that are working, that are high-end products that are really beneficial for film production sets. And remember that our products, even if they are the most expensive in the markets, film production to an even higher extent than still photography productions, the money doesn't... go to to really to lighting it is to a lot of other things on the set that are much more important so efficiency in in in lighting side helps the the productions to be more cost efficient and that is our aim by so we have constructed a product that are the highest you know, power light output per kilo and fast setup so that gaffers can handle the the setup and concentrate on on on creative light setting on the on the set, which really matters for for the quality of the production. So that is our concentration. However, we need to see this fly. And this we also expect by the experience of earlier product launches, we we expect this to take some time that isn't reason number one the reason number two is that we do not have a full line of product yet and we need a a much broader that one could also discuss what does it mean with the full line but we will need to have a broader line than one product anyway and right now we have one product running with that and and promoting that and then we'll see what kind of other products we will be able to launch towards the end of the year

So it's more about you being cautious. Still, do you want to give any kind of a cautious estimate how big this segment can be for you towards year end?

No, I cannot. Sorry.

And then another question. No problem. Then we'll just have to wait. Then another question. You mentioned in your presentation R&D capex 121 million last year, 16% of sales. This number to be rather stable 2025, but the smaller portion of sales. Are we talking about back to old numbers like 13% the year before or even lower? I'm trying to get a sale of guidance from you. I'm guiding you. Less than 16. Less than 16 or less than 16?

Less than 16 because it was 16 in 2024. So when we stand here in 12 months down the line, it has to be lower than 16. And how much lower, it depends on us. I hope so. And we do not know. It's as simple as that. There is no meaning in giving any forecast. Because we have a... I am confident. I am passionate about this new industry. I am also confident of the still photography market that we are able to do a lot of sales and our new products will deliver... what customers expect. But there is uncertainty in the market. I'm sure you already know, Marcel, about that and see other companies have the same issue about the confidence in Asia. We also have the something may be a Trump effect that people are, since a lot of things are moving in the US, that people might be more cautious because of this and because of interest rate that might not fall. All that I do not control. We control that we are delivering new products, that we are marketing the products, that we are ensuring that the customers are very happy with our products. And we're doing this one by one by one. And we have always done that. and and we will continue to do that and before this really takes off i do not know when it will take off but i i i think that we will uh that we need to work hard and we will work hard and passionate in order to actually ensure that the customers are happy with what we're launching hence i cannot give you an estimate asia to the us and you uh

Can't blame me for trying. You mentioned tariffs. Are you looking into some kind of production or assembly in the US?

Right now, around 10% of our sales in the US have a country of origin from China that are affected by the 10% tariffs. So we have some limited effect on tariffs. We're looking into the possibility how we are going to push this further down to the American consumers so that they pay for this. That's raising prices. so that is number one we're also looking of course with and negotiating with our suppliers in order how they can assume part of this and thirdly we are we have more long-term contingency plans that if there is an effect of uh that we need to move part of the production uh into the inside the borders of the United States, because this is still and will be our biggest market into the future. So it is very important that we have a cost-efficient way of getting the products to the American customers, of course. So it could happen, but this is a more medium, long-term plan, and you're not moving a factor within a quarter. It takes much longer time, even if we are faster in doing that than if we would have owned our own factories. And we do not. As you know, we are using subsuppliers. Part of our subsuppliers, they already have factors in the US, but they need to be, it still will take time in order to move production. And it also needs to be overall cost efficient because we have placed our production in the places around the world because we believe that they are the most efficient way for us to produce the products.

And a final question. In terms of lag, time lag from product launch to sale for your products,

core products is that longer now than previously due to generally more uncertain customers and how long is the lag right now i don't really understand what do you mean with lag normally a product development process takes 18 to 36 months that should be two and a half years but it could be 36 months and sometimes with new types of technology it will take even longer Is that what you mean with lag?

Because when we are ready to... I was thinking from when you launch, when you are ready until the bulk of the volume comes. Is that period longer now?

no not really we have a sell-in period that is affecting sales and we see this sell-in because we're filling the channel so all the dealers they need to have stock both for demo demonstration purposes and also for or actually being able to support their customers immediately so they need to have stock and we are we are pushing that so there is a selling effect in the beginning when we are launching but then there is normally after a couple of months after that there is a slower period and then the sell-out process comes and that there takes time but it is not longer now than it was before it looks the same the lag period or the time from launch and when we see the figures in the profit and loss and in the sales figures. So, no, there is no change.

And what is this typical lag from a launch of a ready product until you have increased in sales? When do you typically notice that? It's like two quarters?

No, no, but we... But we... It looks approximately like this. At immediately around launch, as I said, we have a sell-in effect when we're filling the channels. And that is the one to three months around launch time. And then we have a slightly lower sales after that. And after that, we see an upturn again when sell out from the dealer starts and the normal consumption from dealer and our own stock starts. So I would say a quarter. before you have an upturn, a downturn, and then you have an upturn again after that. That is the normal way when we have a normal product launch.

Thank you. That's clear. Thank you so much. That's all for me.

Thank you. More questions?

The next question comes from Fredrik Reuterhell from Redye. Please go ahead.

Good morning Anders, Linus and Amanda.

Good morning.

I want to pick up the weakness that you've been seeing for some time, both in China and Japan. I understand it's going to be very hard for you to give a feeling for the market going forward, but I mean, can you give some more color on the Japanese market? I mean, you've been doing this for quite some time. Do you think this is a new normal or should we see a pickup there?

The only thing I can say about that, we are traveling. Amanda is going there in a couple of weeks. We have a great team in Japan, and we're doing our utmost to sell more flash. I have no idea about the macro, and I think you guys know much more about the macro and meet more companies. We see that consumers are slightly less confident than before. the Japanese market is not so volatile in the demand. And so we see it. I do not expect it to go down further, though, given the historical figures that we've seen. And we have more activities than ever in the Japanese overall market, thanks to product launches and other marketing activities. But the general market trend in Japan, I don't know. That is not. We sell flash. We are not macro.

Okay, good. And then on the east coast in the U.S., and particularly New York, I wonder if you can paint a picture of the current demand landscape there. I'm thinking about demand from retail, large studios, rental houses, and so on. What is the trend there?

On the east coast, specifically?

Yeah, particularly New York and the area around New York there.

That is a too detailed question that I cannot answer.

However, I must say...

Yeah, I mean, Fred, yes, but the thing is that we have our two biggest dealers in the U.S. that are based on Manhattan, and we work very hard with them in order for them to sell. But they are not only selling to the studios in New York. They're selling all over U.S. and actually also outside, even if they say that they don't. They're also shipping outside the U.S. So it is hard to say, and I cannot, of course, we meet the studios around New York and on the West Coast, but I don't want to go into those details, frankly speaking.

Okay, okay, good. In the Q4 2023 letter, you wrote that you had the ambition of two major product releases during last year, 2024. And you actually released three flash products, but just the LED product. But how many product releases can we expect now in 2025?

So our target is, as we said before, two releases around. But that is also how we succeed in product development. You know, product development, when you're passing technology hurdles, which is part, we are not only doing known technology, when you need to actually ensure that you are innovative and do the right thing technologically, that we actually do the... uh for the customer important it takes technology steps and that could take longer time and it could take shorter time so you're not always sure exactly when you will launch the product so that's why we are we are not able to give a forecast on exactly how many launches that we're doing of course we have a thorough plan uh but we are working in a very agile way in order to actually get that happened as fast as possible and and and we cannot commit to uh officially saying how many we will launch this year okay okay and my last question is regarding your activated 35 minutes seconds this quarter

And then you broke down and said that it was activation for product development, but also for the ERP system and e-commerce platform. Is it possible to break out how much the ERP system and e-commerce platform was?

No, that is not something that we're disclosing.

Okay. That was all for me. Thank you very much. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

So I have received a question here. Can you provide any information on the financial performance of the stylish shoots acquisition?

You want me to take that? Okay. Thank you, Amanda. So first of all, Linus, you already commented on that because I think that question is coming from the financial.

Yeah, exactly. So the release of the liability is not related to the styleship acquisition. As I said, it's related to the smaller software acquisition that we did in 2023. But also, if I start to comment on the first question, it's so that we have actually merged the companies into one entity. So it's not actually possible for us to comment on the overall financial performance from these entities. But of course, it's a kind of a signal effect that if we are doing the release, everything has not really been according to plan.

Okay. I have another question here. How does Profoto see the competition arising from AI-generated product photography? If there is any significant threat, how will Profoto conquer this threat?

So I think I already slightly commented on that. Do you want me to develop further on it? And Amanda is nodding. So the answer is yes, I should do that. So we see this as a possible technology shift. Please remember that all our products are sold to photographers and used on assignment where we are shooting and photographing people. And people is not general people, they are specific people. So it is either it's myself or it's someone else that needs to be shown on the next annual report or things like that. So that is hard work. to actually AI generate a specific person. That is not really possible and not really done today. You could make you look better, and that is Photoshop already doing. So that kind of amelioration or making the images better or adjustment of the post-production part is already used and has been used in that way since actually the analog times in different ways. So that is not a real change. The change here, the possibility we see, is that, of course, you need to actually put the person into a different environment. That is actually handling the background. We are working together with photographers in order to make this process better because the fact is that the demand on doing the right kind of light setting, light shaping for that kind of image is even more important important than in in reality and on on location or in in the studio photography so we see a lot of possibilities in actually promoting light shaping and that's where pro photo is profile is as you know the light shaping company for still and for film so we see a lot of possibilities for this for high end production like we are targeting today so we have a lot of hope for this for future AI development. And I would also like you to remember that I've been at least through two major tech shifts or technology shifts. And that is one is I'm old enough to be from analog to digital photography. where we actually thrive a very good way because the demand on the products went up. You went from shooting up to 720 images per fashion shoot to up to now you're up to five or even 10,000 images per shoot. And you need high quality equipment for that. And secondly, we also went through the technology shift from um from to from manual to automatic exposure control for studio flash and this happened 2014 where pro photo sales increased 50 two year in a row so we are happy for everything that is happening in the market change is good And we love the change and this gives us new possibilities for content creation. We are the leader in the premium brand for capture of any kind of content in the real world. That is what we do and we have a lot of belief in that we will thrive in this new environment too.

Great. So I don't have any more questions. So thank you for listening in today. And a gentle reminder about our next report, which will be published on the 9th of May. Thank you.